After years of limited visibility into pharmacy benefit manager (PBM) practices, PBMs are now facing significant oversight and clear disclosure obligations. Rising prescription drug costs and complex compensation structures have long made it difficult for plan sponsors to determine whether PBM arrangements are reasonable and in the best interest of plan participants. This trend toward greater transparency has been reinforced by recent enforcement actions, including the Express Scripts settlement with the FTC, signaling increased regulatory scrutiny of PBM practices. In 2026, two major federal actions — the Consolidated Appropriations Act of 2026 (CAA 2026) and the Department of Labor’s proposed PBM fee disclosure rule — have moved the needle on transparency and accountability, giving employers, plan fiduciaries, and healthcare providers new tools to understand PBM revenue flows and evaluate contracts.

PBMs play a central role in managing prescription drug benefits. Their services typically include negotiating rebates and discounts with manufacturers, establishing drug formularies, building pharmacy networks, and processing prescription claims. However, PBM compensation structures are often complex, opaque, and sometimes tied to multiple revenue sources, including rebates, spread pricing, clawbacks, and fees paid by pharmacies or other intermediaries. These arrangements have historically made it difficult for plan fiduciaries to assess whether PBM contracts are fair, reasonable, and aligned with the plan’s interests.

The reforms of 2026 aim to address these challenges by introducing mandatory disclosure, reporting, and audit rights, as well as requirements for PBMs to pass through rebates and clarify compensation arrangements. For pharmacies and healthcare providers facing PBM audits or reimbursement disputes, these transparency reforms may also create new opportunities to challenge reimbursement methodologies, audit findings, and network contract terms that previously operated with limited visibility. For assistance, you may contact our healthcare attorneys at info@mdrxlaw.com or by phone at 212.668.0200.

PBM Oversight Under the Consolidated Appropriations Act of 2026

The Consolidated Appropriations Act of 2026 (CAA 2026) introduces significant statutory reforms that expand PBM reporting, disclosure, and accountability obligations. While most provisions affecting reporting and rebate pass-through take effect for plan years beginning 30 months after enactment (January 1, 2029, for calendar-year plans), the law immediately establishes PBMs as covered service providers under ERISA Section 408(b)(2). This designation subjects PBMs to the same disclosure rules that apply to brokers, consultants, and other fiduciary service providers, enhancing employer access to information on PBM compensation and activities.

Rebate Pass-Through and Compensation Transparency

A key feature of the CAA 2026 is the requirement that PBMs remit 100% of manufacturer rebates, price concessions, and alternative discounts directly to the plan sponsor or plan, eliminating retained rebates as a hidden revenue source. PBMs must provide accurate accounting records to verify compliance. The law also clarifies that intermediary payments, including those through rebate aggregators or group purchasing organizations, must be accounted for in PBM reporting.

By treating PBMs as ERISA-covered service providers, plan fiduciaries gain clear insight into direct and indirect PBM compensation. This transparency allows employers to better evaluate contracts, negotiate favorable terms, and ensure PBM arrangements align with plan objectives and participant interests.

Expanded Reporting Requirements

CAA 2026 establishes a semiannual reporting framework for PBMs, requiring disclosure of:

• Drug-by-drug pricing and net costs after rebates

• Total spending by the plan and participants

• Spread pricing arrangements

• Formulary inclusion rationales

• Compensation paid to pharmacies and third parties

• Aggregate rebates, fees, and discounts

For all plans, PBMs must provide summary reports showing overall prescription drug costs, utilization rates, and compensation flows. Plan sponsors are also required to notify participants about PBM reporting obligations, either within other plan materials or as a standalone notice.

Annual Audit Rights

CAA 2026 grants plan sponsors the right to conduct annual audits using an auditor of their choice, without PBM restrictions on auditor selection or scope. PBMs must provide the necessary data and documentation to support the audit. While employers bear the cost of selecting an auditor, PBMs are responsible for providing the requested information, giving sponsors a practical mechanism to verify compliance with rebate pass-through and reporting obligations.

Fiduciary Protection and Civil Penalties

The law includes protections for “innocent” fiduciaries who reasonably believe that PBMs are in compliance. Plan sponsors that act in good faith and follow required notice procedures can avoid liability for fiduciary breaches. Civil penalties may apply if PBMs fail to meet reporting or rebate obligations, further incentivizing compliance.

The DOL Proposed PBM Fee Disclosure Rule

In addition to statutory changes under the CAA 2026, the Department of Labor (DOL) has proposed regulations focused on enhancing transparency for self-insured employer-sponsored health plans governed by ERISA. The proposed rule would require PBMs to provide detailed disclosures of fees, compensation, and other financial arrangements directly to plan fiduciaries.

Covered Plans and Service Providers

The rule applies specifically to self-insured group health plans and does not include fully insured plans at this time. “Covered service providers” under the proposal include:

• PBMs providing pharmacy benefit management services

• Brokers or consultants affiliated with PBMs who advise or make referrals regarding PBM services

To be subject to the rule, the provider must reasonably expect to receive $1,000 or more in direct or indirect compensation in connection with the services.

Two Types of Required Disclosures

Initial Disclosures: PBMs would provide detailed information prior to entering, renewing, or extending a contract. Required disclosures include:

• Description of services to be provided

• Direct compensation from the plan

• Expected payments from manufacturers, including rebates and fees

• Spread pricing arrangements

• Copay clawbacks collected from pharmacies

• Price or inflation protection agreements

• Compensation for contract termination

• Any other expected compensation

• Formulary placement incentives

• Pricing methodology for net drug costs

• PBM fiduciary status

• Plan audit rights

Ongoing (Semiannual) Disclosures: PBMs must provide reports on actual compensation received over the prior six months. Any material differences from prior estimates must be explained.

Employer Audit Rights and Enforcement

The proposed rule allows plan sponsors to conduct annual audits using an auditor of their choice. PBMs must provide the data necessary to complete these audits. If a PBM fails to provide the required disclosures, the sponsor must issue a written correction request; failure to comply within 90 days requires notification to the DOL. Employers acting in good faith are protected under the proposed rule from penalties associated with PBM noncompliance.

Timing and Public Comment

Public comments on the proposed rule are accepted through March 31, 2026, and the final rule is expected to take effect 60 days after publication, applying to plan years beginning July 1, 2026 or later.

What Employers and Healthcare Providers Should Do Now

Together, the CAA 2026 and the DOL proposed rule represent a historic shift in PBM transparency and oversight. Employers and plan fiduciaries will have unprecedented access to information on PBM compensation and contract structures, enabling more informed decision-making and stronger fiduciary compliance.

Pharmacies and other healthcare providers should also monitor these reforms, as enhanced reporting requirements and increased visibility into PBM practices may affect reimbursement, formulary placement, and contractual arrangements.

Plan sponsors are advised to:

• Review current PBM contracts for transparency, reporting, and rebate terms

• Begin discussions with PBMs to align agreements with CAA and proposed DOL requirements

• Prepare for participant notice obligations under the CAA

• Track forthcoming DOL guidance and rule finalization

Proactive preparation will help ensure compliance, protect fiduciary responsibilities, and position plans to manage prescription drug costs more effectively under these landmark reforms.